“We expect the Indian economic growth to continue to pick up as liquidity conditions normalise and the reform agenda is back on track,” said Moody’s in a statement here.
The central government on November 8 demonetised the Rs 500 and Rs 1,000 notes, which accounted for 86 per cent of the cash in circulation by value.
“Recovery of currency in public circulation in early February illustrated the incremental improvement in liquidity. We expect remonetistion to continue,” noted Moody’s in its report on “Indian credit – Economic slowdown from demonetisation wanes; credit implications unfolding”, which provides an update on the implementation of demonetisation and remonetisation, its economic impact and credit implications for the government, firms, banks and the finance market.
The currency stock had rebounded to Rs 9.8 trillion in early February after falling to Rs 7.8 trillion from Rs 17 trillion before demonetisation.
“We expect GDP to moderate to 6.4 per cent in the January-March quarter from 7 per cent in A October-December quarter and recover to more than 7 per cent subsequently,” said Moody’s.
Noting that sales in the real estate and auto sector would gradually recover after sharp fall in the aftermath of note ban, the bond rating said the trend would continue over the second half of fiscal 2017-18.
Steel production, which was affected by the note ban, has also rebounded and is performing better than anticipated.
“Demonetisation had little impact on oil and gas refining and marketing firms, while slowdown in economic activity has weighed on demand for credit among retail borrowers,” observed the report.
Noting that banks had higher deposits, the report said the trend would increase by 1-2 per cent, with cash remaining the dominant means of retail transactions.
The performance of the rated Indian auto asset backed securities (ABS) levelled off in January after deteriorating post-demonetisation.
“We expect delinquencies and collections to return to pre-demonetisation levels by March, as the economy recovers and stronger oil prices and budget policy initiatives provide support,” the report said.
On the reform front, it believed that the government’s agenda remained on track.
The Investors Services Cell also believed that the note ban would strengthen the country’s institutional framework by reducing tax avoidance and corruption, which is a credit positive for the sovereign.